May 7, 2014

Doing Business in Texas: Big News on the Texas Franchise Tax

They say everything’s bigger in Texas. We may be a little partial, but we’d have to agree. Doing business in Texas is quite the same, in that every business owner takes on many big responsibilities such as the Texas Franchise Tax, also known as the Margin Tax.

The Texas franchise tax is a privilege tax imposed on corporations, including banking corporations and limited liability companies that are chartered in Texas, partnerships (now specifically including a limited liability partnership), savings and loan associations, business trusts, professional associations, business associations, joint ventures (exceptions apply), joint stock companies, and holding companies. The tax is also imposed on non-Texas entities that do business in Texas[i].

Applicable businesses are required to file a franchise tax report annually by May 15, whether or not they owe. Last year, Governor Perry signed HB 500, making several amendments to the franchise tax law that benefit business owners, including:

1. A temporary rate reduction for all taxpayers in 2014

This will reduce rates for all taxpayers as follows:

  • .5 to .4875 percent for retailers and wholesalers
  •  1 to .975 percent for all other taxpayers

2. Making permanent the $1 million exemption for small businesses in Texas

This allows for all taxpayers to deduct $1 million in revenue when calculating the franchise or margin tax. If a business has less than $1,080,000 in total revenue for the accounting period January 1, 2013 through December 31, 2013 (i.e. $1MM exception indexed for inflation), it will not be subject to the franchise tax.  If you’re interested in a little history, this benchmark actually increased the original $600,000 deduction that was set to go into effect January 1, 2014. Round of applause to the Texas folks on the hill.

For reports due on or after January 1, 2014, taxable margin will be computed based on the lesser of:

  • 70 percent of total revenue; or
  • Total revenue less the greater of:
    • $1 million; or
    • cost of goods sold or compensation, as applicable to the taxpayer


 Take note that this is in effect now and filing is due by May 15, 2014. For more information on the Franchise Tax, check out

 As always, the Maddox Thomson Team is here to help.

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